Canada's housing market continued to deteriorate in January amid declines in both the price and sales of existing homes, particularly in British Columbia, Alberta and Ontario, figures from the Canadian Real Estate Association showed Friday.
While economists do not expect the housing downturn to be anywhere near as severe as in the United States or the United Kingdom, the fall in prices amid a rise in the household debt burden is expected to weigh on housing investment and keep the market in the doldrums for some time.
"The ongoing sharp drop in home sales points to further declines in prices as well as a deeper pullback in new home building," said Douglas Porter, the deputy chief economist at BMO Capital Markets.
Sales of existing residential homes fell a seasonally adjusted 3.1% to 26,300 units in January, following a 1.8% decline in December. Sales have fallen a sharp 40.9% since January last year. In this environment, less people planned to sell their home, with new listings down 3% from December and 14% from January last year.
Despite this decline, Derek Holt, an economist at Scotia Capital said the supply of unsold homes on the market was still too high relative to demand, putting downwards pressure on prices. The average house prices dropped 11.3% from a year earlier, the figures showed. He said the data reflected the further deterioration in the national housing market, which deepened alongside the rise in unemployment and increasing pressure on consumer spending.
"The fact that Canadian consumer finances are at their most stressed point since the early 1990s recession adds to the downsides facing the consumer sector," Mr. Holt said. "If the Canadian consumer is as exposed to potential downsides as we believe, then the Bank of Canada is not done cutting interest rates, and will keep them low for longer than markets may be anticipating."
The central bank cut rates by half a percentage point to 1% on Jan. 20. Its next decision will announced on Mar. 3.
About 52% of Canada's largest markets reported a decline in house prices from January, 2008. Calgary was the worst hit of the big cities, with prices down 11.4% over the year, followed by an 8.8% drop in Vancouver and an 8.2% fall in Toronto. Prices rose 2.2% in Montreal and 1.8% in Ottawa.
"Affordability has improved and will be better during the spring home-buying season in many markets compared to last year," said Gregory Klump, the chief economist at CREA. "However, weak consumer confidence is likely to continue squeezing sales activity during the spring home buying season."
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